Ethereum killer Binance Smart Chain? ETH fees degenerate
It is not only the trading volume that is currently reaching record highs on the Ethereum Blockchain. The fees are also shooting through the roof again and again. Is Ethereum becoming a playground for the wealthy?
The Ethereum network is at a crossroads. While rising trading volumes and the staking test run on the Beacon Chain testify to a huge Ether demand, fees for narrow The News Spy wallets have become prohibitive. This makes other platforms like the Binance Chain increasingly attractive to retail investors. Is Ethereum squandering its status as the world’s computer?
For Ether investors, it’s a nagging topic: fees, or in Ether-speak: gas fees. Since January, fees have not averaged less than US$5, according to bitinfocharts, and only reached a sad record high of US$38 on 23 February. At the current level of 20 US dollars, the peak has been corrected downwards considerably. However, there can be no talk of affordable fees.
The rise is above all evidence of an exponentially increasing trading volume. As Ryan Watkins, an analyst at Messari, communicated in a tweet, the „turnover figures“ so far point to a record-breaking first quarter. Watkins projects the potential trading volume settled in Q1 to be US$1.6 trillion based on transactions to date. By comparison, the trading volume processed via the Ethereum blockchain in Q1 2020 was still 116 billion US dollars.
So the facts speak for themselves: Ethereum is experiencing a heyday, never before has the rush been so great. According to Ryan Watkins, the trading volume is the best proof that investors are not migrating to other blockchains. But this could just be a snapshot.
Ethereum killer Binance?
As on-chain data platform Coinmetrics points out, the high transaction fees have „led to new rounds of conversation about potential Ethereum killers“. If fees remain at such high levels, other smart contract platforms could „overtake Ethereum’s big lead in decentralised applications“. According to the report, the hottest contender is the Binance Smart Chain (BSC).
The Binance Smart Chain is emerging as the new DeFi hotspot. The Total Value Locked (TVL) is already more than a quarter of the Ethereum Blockchain at just under 10 billion US dollars. In contrast to Ethereum, the transaction fees are in the cent range. In addition, transactions can be executed faster than with Ethereum. Small investors in particular see the Binance Smart Chain as a viable alternative to Ethereum.
This trend is impressively reflected in the price performance of the Binance Coin (BNB), which has already moved up to third place among the largest crypto assets with a market capitalisation of over 37 billion US dollars. The growth of the DEX PancakeSwap (CAKE), which is based on the Binance Smart Chain, also underlines this trend. Moreover, the Binance Smart Chain is compatible with the Ethereum Virtual Machine (EVM). However, one drop of bitterness remains: in the hands of the largest crypto exchange Binance, the BSC network is highly centralised.
According to Coinmetrics, the usury of fees in the Ethereum network has not led to a decline in the number of daily active ETH addresses. But the longer the transition to Etheruem 2.0 drags on, the more Ethereum runs the risk of becoming a marketplace for high earners.
Only with the transition to phase 1 should fees return to normal. According to chief developer Vitalik Buterin, the transaction throughput already increases 6,400-fold with the implementation of the first scaling solutions. Transaction costs should fall dramatically in the wake of this. But until then, Ether investors will still have to put up with fee usury. The start of phase 1 is roughly scheduled for September this year.